A “Latte a Day” or a “ULIP Investment”? Have you heard of the “Latte Factor”? In case you are not familiar, the latte factor was promoted by author David Bach. The basic idea behind this is simple. If instead of getting a latte worth Rs.150 – 200 every day, you invested the money, you would accumulate a substantial corpus in let’s say, 20, 30, or 40 years.
You will find many views on the latte factor. A few people claim that there is nothing wrong in using your money to appreciate the little things in life. Others argue that the latte factor is a significant consideration when planning your finances. Since everybody has their own opinions on the latte factor, we thought we would offer our take.
The Latte Factor Isn’t In Reality About The Latte
The latte factor can come down hard on individuals, especially those who prefer to have their expensive coffee every morning.
However, the issue is not only about an actual latte or food spending. It is more about the various little expenses we give little thought to every month. We start halting by our preferred cafe for a 150 rupees espresso each work morning. Or on the other hand, we spend Rs. 1000 to 2000, sometimes, even more, every weekend at lunch or dinner.
These costs don’t appear much superficially. But, delve into their substantial impact on your financial budget, and you will see that they are huge.
For example, that daily latte worth Rs. 150 adds up to Rs. 4,500 every month or Rs. 54,000 every year! Furthermore, the weekend dinners that cost approximately Rs. 1000 can add up to Rs. 4000 every month or Rs. 48,000 every year! Thus, throughout a year, you spend almost a lakh with next to no thought.
So the main concern here is that its all about these small, frequent expenses and understanding how they affect your overall financial goals. And once you focus on these little costs, you can put them to better use. Meaning, you can align your spendings, and convert these unnecessary expenses into something valuable, like investing in a prudent investment like ULIP.
How Can ULIPs Help?
In the event that you do decide to cut back on your latte factor and invest the money that you are saving, ULIPs can be the right choice. Because, in terms of returns, equity-oriented ULIPs score over other instruments. Thus, if you are looking for a safe long-term investment option and want to generate maximum return on investment, go for a ULIP policy.
ULIPs, besides the higher returns advantage, can be instrumental for long-term goals as they also offer life cover too. Thus, ensuring that the goals of your dear ones are not jeopardized in your absence.
Furthermore, by investing in a prudent ULIP policy, you also get the option of switching funds during your term. For instance, you can switch between equity, debt, or balanced funds as per your risk appetite or changing goals. The best part is, reputable insurers like Max life Insurance allow twelve free switches per year. Which means no additional cost incurred for taking advantage of the changing financial or economic conditions.
Moreover, based on the policy tenure and premium amount, ULIP calculators can help you calculate the probable returns offered by a specific ULIP policy.
The Easy Way to Create Wealth is Long-term Investing
Again, the basic idea here is really simple. Let’s say, instead of two lattes per week; you just drink one for a year. Thus, you save on 52 lattes, a total of Rs. 7,800 (150*52). If you are 25 and invest Rs. 7800 every year in a ULIP policy, considering the interest rate of 10%, you would have over Rs. 41 lakhs when you are 65.
Now, that’s a big amount! And most importantly, it’s the foundation of a good retirement, build by tossing away a few frivolous parts of your daily routine.